Navy: We’ll Never, Ever Overpay for Biofuels

The oiler U.S.N.S. Henry J. Kaiser delivers a biofuel blend to the guided-missile cruiser U.S.S Princeton during the Great Green Fleet demonstration. Photo: U.S. Navy

Last week, Danger Room published a critical look at the Navy’s efforts to launch a renewable-powered “Great Green Fleet” — and kickstart the market for biofuels in the process. Not surprisingly, the Navy’s leadership had all sorts of objections to the piece. But they took particular exception to the section about the price of the biofuel. A Pentagon-sponsored study says that the Navy could spend as much as $1.76 billion annually for all the biofuel they’ve promised to use by 2020. In this exclusive op-ed, Deputy Assistant Secretary of the Navy for Energy Tom Hicks says the Navy will never pay that kind of premium.

Danger Room incorrectly reported that the Navy could spend as much as an extra $1.8 billion per year on biofuel; a completely incorrect projection lifted from a 2011 Congressionally-mandated report (.pdf) that did not use realistic data or take into account the Navy’s commitment regarding biofuel purchases for operations. The figure is based on a crude extrapolation of analysis and is wrong for several reasons.

First, the $1.8 billion figure assumes oil prices won’t be higher in 2020, and that biofuel costs won’t go down. We just don’t live in a world where oil prices never go up, technology doesn’t advance, and economies of scale don’t bring down cost; in fact, history tells us that the exact opposite is true. Eight years ago, the cost of petroleum was just under $40 per barrel and the annual volatility was plus or minus 10 percent. Today, the price of petroleum has more than doubled and the annual volatility is more than 30 percent. It is impossible to accurately predict where prices will be eight years from now, but with ever-increasing global demand and continued political unrest in oil-producing countries, nearly all experts agree that oil prices will increase, and we have seen the price of biofuel drop.

Nor does the Danger Room column mention that the government is already implementing one of the recommendations in the report for bringing down the estimated cost of biofuel, the Defense Production Act (DPA). DPA is an authority dating back to 1950 that has been used to advance the Navy’s nuclear propulsion program as well as many other defense-critical domestic industries. Taken together, these errors and omissions provide opponents with cover for repeating factual inaccuracies and misrepresenting the Navy’s biofuel program.

Danger Room made other errors about Navy Secretary Ray Mabus and about congressional support for the Navy’s biofuel program. For one, Secretary Mabus has never turned down a meeting with a member of Congress on any topic, including on the Navy’s energy initiatives. Also, there is such a significant and public show of support for the military’s biofuel initiatives – including bipartisan support, as seen most recently in the Op-Ed penned by Senators Jeanne Shaheen and Susan Collins – that it is irresponsible to speculate on the outcome of this ongoing debate, particularly so early in the legislative process.

There have been efforts in Congress to restrict the Department of Defense’s ability to pursue all alternatives in order to reduce our reliance on foreign oil, but the potential consequences to these efforts are not well-understood. Until biofuels are qualified as fit for use, costs will be driven high by necessary tests and by temporary storage requirements. The House bill and the Senate Armed Services Committee amendments restricting the Department of Defense’s (DoD’s) abilities to pursue all domestic alternatives to foreign sourced fossil fuels guarantees that biofuel prices will remain unsustainably high.

These congressional efforts would prohibit DoD procurement of operational quantities of biofuels unless they were at parity with conventional fuels. Because there is a modest cost to blend alternatives with conventional fuel, the language favors foreign sources of fuel over domestic alternatives. Confronted with a choice between purchasing foreign fossil fuels sourced from outwardly hostile regimes or areas of political unrest and domestically produced biofuels at the same exact cost, it would be illegal under these provisions for DoD to purchase the domestic alternatives in operational quantities.

This same piece of legislation also appears to prohibit the DoD from using DPA, which would proscribe any actions whatsoever that would make domestically produced biofuels cost-competitive with conventional fuel. Another potential consequence of this legislation is that the DoD may be prohibited from purchasing non-biofuel alternatives such as hydrogen, fuel used for UAVs, which inherently cost more than conventional fuels.

Prohibiting the DoD from pursuing cost-competitive alternatives severely limits our ability to reduce reliance on fossil fuels sourced from outwardly hostile parts of the world. It is a policy position that is bad for energy security and bad for national security. As we continue the debate in Congress and across the nation about America’s energy future, let’s pursue all the options that can achieve greater energy security for our country, and not allow the conversation to be sidetracked by oversimplifying or misstating the facts.

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